In February 2006, notable executives from Internet companies and Telecom giants converged on Capital Hill to lobby to consider revising a ten year old Telecom bill. The issue at stake was the concept of Net Neutrality, a divisive idea suggesting that all internet content (regardless of format) should be treated equally.

On one side of the debate fell Internet and software companies. Businesses like Google and Yahoo wanted to insure that all websites – from blog to portal, could be accessed equally. Even more so, they wanted legislation that would protect different types of content like video, or music, or the technologies that deliver them (like Peer to Peer) from arbitrary exclusion. Their goal was to insure nothing was singled out and taxed by the ISP’s who control the supply pipeline, the network infrastructure over which Internet traffic flows. The software and Internet companies wanted to insure their content would always flow freely without tax or toll.

The Telecom companies, on the other side of the stage, wanted the freedom of an unregulated market. They talked about how technology is changing, how not all data is created equal. They drew attention to the fact that some types of content, or websites, could disproportionately burden their networks. That burden would be to the detriment of consumers, they said. Video content, served in large file sizes, for example, could take up far more space in the pipeline than an email. If not managed, traffic performance for all could suffer. Further, managing this traffic and insuring consistent speed costs money. Why shouldn’t the ISP’s have the right to prioritize pricing?

In essence, what the Telecom’s wanted was the freedom to pass on costs, or otherwise charge for access by throwing up toll booths on the Internet Super Highways that they run. At their discretion, they wanted the ability to throw up a bandwidth blockade. They wanted to be able to say "you’re riding on our network more than your competitor. Pay up or go away." Software companies, claiming consumer’s best interest, said all Internet traffic should be created equal; treated equally under the laws. Giving ISP’s the power to do otherwise, they inferred, would be like making them "hall monitors" capable of arbitrarily influencing (or even manipulating) the flow of data for their benefit at everyone else’s expense.

It’s now, well more than a year later and Allegations of ISP throttling by Comcast that surfaced in October are bringing the issue back into the spotlight. Where policy decisions end up could have significant impact on how the Internet evolves. That will be relevant to consumers but similarly, it could be especially relevant to entertainment companies who’s traditional distribution channels are converging online.

•A Quick History
In 1996 Congress passed the Telecommunications Act. It was the first major upgrade to telecom law since the Communications Act of 1934. The Act deregulated the industry and forced local telephone companies to share their lines with competitors. It set forth provisions for licensing broadcast spectrum. It dealt with issues for digital TV broadcasting and cable services. The Act also made a now famous, and controversial, distinction between what it deemed “Telecommunications Services” and “Information Services.” The two classes of companies had different rights (and obligations) under the law.

In 1996, predating the explosive growth of the Internet, and predating widespread adoption of broadband (e.g. high speed) internet access, Internet Service providers (which provided primarily dial up services) were classified under the Telecom Services title and labeled “Common Carriers” by FCC. That designation meant an Internet Access Service like Comcast or Earthlink couldn’t discriminate between data from a competitor or their own site. Accordingly, if it had been available at the time, a video on YouTube or Hulu, or a song downloaded from iTunes, had to be delivered at the same speeds as anything else moved across the ISP’s network. Of course, YouTube, Hulu and iTunes weren’t around in ‘96. Back then, in the world of Web 1.0, content was text and static graphics. In file sizes, things were much smaller.

The Internet’s changed a lot since ‘96. In 2005 things changed with regulators too. 9 years after the fact, the country was increasingly using high speed connections, many over cable networks. Internet content had become far richer. The FCC reacted to the changing times and eventually decided that after a one year grace period, all high speed carriers would be designated as Information Services. This designation exempted them from the Common Carrier requirements. It meant, discriminatory practices would not legally be prohibited (even if Policy was otherwise). It meant, they can in theory (even if practice was otherwise) restrict or prioritize data moved on their networks.

The rallying cry for “Net Neutrality” then began. It demanded legislation, it demanded action. It called for Congress and the FCC to step in and insure a fair playing field for all Internet content companies, to insure that ISP’s couldn’t put up toll booths, or throw up a blockade to favor some websites or services over others.

• October Throttling
In the middle of October, reports started to circulate that Comcast, the nations second largest ISP, was blocking efforts by its customers to access certain peer to peer networks (which are widely used for both legal (Joost) and illegal file sharing). Comcast appeared to deny the claims at first, then said they weren’t blocking access but instead slowing it down at times. Reports suggest the throttling was limited to Bit Torrent. This practice of managing data transmission speeds which is called Throttling, they said, is necessary to manage the traffic on their networks.

Comcast took the position that FCC policies recognize the ISP’s need to manage traffic and that this was perfectly permissible. They argued in the press that file sharing networks, which are often used to move large files, could slow their network performance to a halt if not controlled, that throttling was in the best interest of all their customers.

As the news spread, consumer advocacy groups started to cry foul. Complaints were filed with the FCC calling for fines. The Associated Press ran independent tests and found there was indeed throttling on the ISP’s service in several states. News sources started to seek evidence that other ISP’s were also quietly implementing traffic management switches.

The FCC hasn’t ruled, and it’s unclear how long it will be before they, Congress, or courts step in. Until they do, what is permissible both under the Act, and within FCC policy, is up in the air.

• The Stakes
In the past few years, the Internet has risen to become the centralized distribution platform for all varieties of media. Today, unlike years ago when the Telecom Act was written, Internet video is everywhere. Nowadays, professional television and film content are all over the net. Music too is commonplace. Even telephony, through services like Skype or U.M.A (which transfers a cellular signal to the Internet) is migrating online. With time this will only increase.

The Internet represents a vast, cheap, pipeline for moving all this information. That is, it’s vast and cheap for consumers and content producers. That’s not entirely the case for ISP’s or those operating large networks. For them, as operators of all this infrastructure, complex and expensive switches and huge runs of fiber optic cable needs to be run or maintained to keep us connected. As our hunger for more content and higher quality grows so to do their potential costs. Some have even speculated that demand for sites like YouTube, and future HD quality video could risk overloading Internet backbones (the core pipelines of our digital data streams.)

Back in June, at the NXTcomm Telecom conference, Cisco’s CEO John Chamber’s predicted bandwidth demand would grow 300 to 500 percent a year over the next few years. He forecast a rapid convergence between video and internet services telling reporters that “The transition is going to happen much quicker than people anticipate.”

The Net Neutrality debate, especially in light of recent throttling practices, stands as a land mine along that route. Next gen. video services like Joost or video hosting websites like Hulu, all could be harmfully impacted if ISPs can single them out. (And for ISP’s gaining that power would insure them a place in the financial equation of broadcasting next-generation Internet TV. That could prove a financial goldmine).

Arguably most at risk today, are peer to peer services that move a large amount of data upstream (as opposed to a customer just downloading) from the end-user. ISP’s can claim their network infrastructure wasn’t designed to handle that. Peer to Peer technologies rely on data sharing between a peer group of customers to balance the performance for the entire group.

To illustrate by example, imagine John, Kelly and Sarah are three customers watching a video file. Rather than downloading that file from YouTube, and YouTube’s server’s having to handle three simultaneous downloads. John, Kelly and Sarah each download different parts from YouTube and then share them with each other. Accordingly, each might have only downloaded 1/3 of the video from the host site and 1/3 from each of their two friends. These 3 pieces combined to form the full file. Breaking out the math, YouTube would have only had to provide the entire video file once (1/3 to each of the three people). John Kelly and Sarah by sharing handled the rest of the distribution.

IPTV company Joost, and eBay owned telephone company Skype, both operate via this kind of technology. For them, this sharing among customers decreases their server loads and allows them to operate both at lower cost and higher speed (as in the example, the 3 customers only downloaded one movie instead of three).

If you consider reports that Google is now reportedly using more than 1million servers to handle traffic or rumors that Facebook is adding 600 servers a day and then recognize the thousands of dollars each one of these pieces of hardware costs to own and operate – the economics of P2P through savings on bandwidth/infrastructure can be substantial where it’s permissible.

• The Counter Point
There is a school of thought that says bandwidth tollbooths are unnecessary, that ISP’s acting as a bandwidth blockade doesn’t need to happen, and therefore won’t. AT&T for example, has spent heavily on buzzword friendly technologies like fiber-to-the-node and an all-IP network. They believe they are more than comfortably equipped to handle usage demands.

At a conference in Boston last week, Jeff Webber, their VP of Products and Strategies for operations asked rhetorically if High Def would cause them problems. Answering himself he said “no. “ He pointed to quality compression services like those they license from Cisco owned Scientific Atlanta. These services which shrink the data on the network to smaller pieces make the issues more or less moot.

That sounds compelling but if it’s valid across the entire landscape, you have to ask the obvious question: then why is there throttling going on? Is there a bandwidth problem or is it a land grab for future revenue stakes?

• The Result
How all this shakes out is worthy of a big ole’ question mark.

On one plane there are the technical questions. Between load balancing and fiber-switching, and the other practices that go on inside ISP’s, it’s difficult to decipher as a non-expert how much of a problem there really is. It almost seems to depend on whom you ask. So how to determine their pain or the need for a solution? Or how to quantify the scale of the issues? One could argue this is purely a move for monetary gain at the expense of the consumer. Another can argue there’s a real problem with bandwidth and absent controls, all customers will get hurt. Who’s right?

On another plane, there are the legal issues. Big lobbying war chests are open on both sides of the Net Neutrality debate. The stakes, from windfalls to costs, are big for all involved. So nobody is likely to walk without a fight. There have been calls for congressional hearings. The lobbyists should see their accounts swell. Who knows what will happen.

And the FCC? They aren’t likely to rush to judgment. It’s one of those issues where the best advice is “settle in, it could be a while;” even as Net Neutrality appears to be in the consumer best interest (or the absence of it, stands to stifle innovation and growth).

It seems a lot like this will remain an asterisk and risk disclosure for well into the near future. Hypothetically, if Joost went public today (Note: a Joost IPO isn’t likely until far far into the future if ever) it’s safe to bet their lawyers would craft a paragraph in the prospectus warning potential investors about it with phrasing something to the effect of “our business is at risk of being severely restricted by the ISP’s pending a legal solution in our favor. So be warned the quality of our service could fall apart tomorrow if we’re unlucky. It’s probably not likely, but it could happen. Just an FYI.”

The simple bottom line is this: Net Neutrality, and how it effects consumers and Big Entertainment’s increasing migration online, are significant issues but they are complex and going to linger for a while.